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NYSE:

SCHW

SAN FRANCISCO--(BUSINESS WIRE)--The Charles Schwab Corporation announced today that its net income for
the fourth quarter of 2018 was $935 million, up 57% from $597 million
for the fourth quarter of 2017. Net income for the twelve months ended
December 31, 2018 was $3.5 billion, up 49% year-over-year.

Three Months EndedDecember 31,

%

Twelve Months EndedDecember 31,

%

Financial Highlights

2018

2017

Change

2018

2017

Change

Net revenues (in millions)

$

2,669

$

2,242

19

%

$

10,132

$

8,618

18

%

Net income (in millions)

$

935

$

597

57

%

$

3,507

$

2,354

49

%

Diluted earnings per common share

$

.65

$

.41

59

%

$

2.45

$

1.61

52

%

Pre-tax profit margin

45.3

%

42.5

%

45.0

%

42.4

%

Return on average common stockholders’ equity (annualized)

20

%

14

%

19

%

15

%

Note: All per-share results are rounded to the nearest cent, based
on weighted-average diluted common shares outstanding.

CEO Walt Bettinger said, “Our ability to build stronger client
relationships and set financial records through a volatile environment
reaffirmed the power of Schwab’s ‘Virtuous Cycle’ in 2018. While the
year began with strong market momentum, February saw a surge of
volatility, including the largest-ever one-day increase in the Cboe
Volatility Index®. After a relatively stable summer, the S&P
500® reached an all-time high in September, before dropping
580 points to ultimately end the year 6% lower than month-end December
2017. Throughout these ups and downs, disciplined execution of our
‘Through Clients’ Eyes’ strategy helped us succeed with clients –
households new to Retail rose 20% compared to 2017, with 53% of those
new clients under the age of 40. Another measure of our success is the
willingness of new and existing clients to trust us with their
hard-earned assets. Both of our primary businesses posted record inflows
in 2018, with Retail and Advisor Services net new assets rising 37% and
7%, respectively. Altogether, investors rewarded Schwab with a record
$227.8 billion in core net new assets, up 15% from the previous record
in 2017 and more than twice the 2008 total – clear evidence of our asset
gathering capabilities. These impressive flows were driven, in part, by
our ability to win in a competitive marketplace as we continued
attracting more than two dollars of inflow for every dollar out in 2018.
Our strong net new assets largely offset lower market valuations and we
ended the year at $3.25 trillion in total client assets.”

Mr. Bettinger continued, “We remain well-positioned to continue driving
robust business growth; with less than 10% market share, we still have
ample opportunity ahead of us even as our client base reaches new highs.
Last year, clients opened a record 1.6 million new brokerage accounts,
up 9% from the previous year. Record client activity and help from the
broader environment contributed to our sixth straight year of record
revenues, which totaled $10.1 billion, up 18% from 2017. Our ratio of
expenses to client assets, a key measure of our efficiency and one of
our core competitive advantages, remained at our all-time low of 16
basis points – the best we’ve seen among public investment services
firms. By balancing near-term profitability with long-term investments
for growth and efficiency, along with support from a more favorable tax
rate, we achieved the fifth consecutive year of record net income, up
49% to $3.5 billion. These results were made possible by our employees’
commitment to championing our clients’ goals every day, and in the
fourth quarter we rewarded our non-officer employees with a one-time
stock award totaling $36 million.”

Mr. Bettinger added, “We seek to offer a ‘no trade-offs’ approach to
investors and are dedicated to sharing the benefits of our scale with
them. We expanded access to investing in the fourth quarter by removing
minimums for individual U.S. brokerage and retirement accounts. We also
lowered the operating expense ratios on five market cap index mutual
funds, removed investment minimums, and consolidated share classes
across a variety of our mutual funds. During 2018, we enhanced our
product line-up, adding 23 ETFs to Schwab ETF OneSource™ to total
265 ETFs covering 70 Morningstar categories. Additionally, consistent
with our focus on improving transparency in investing, we introduced
order-by-order price improvement reporting, enabling our clients to see
how much they save on their equity trades. As we continue to seek ways
to enhance our value proposition, product offering, and transparency, we
are also striving to serve our clients where and how they choose.
Throughout the year we hired over 500 client-facing employees, relocated
or renovated 21 company-owned branches, and expanded the number of
independent branches from 40 to 53. And we were honored to receive the
‘Highest in Investor Satisfaction with Full Service Brokerage Firms’ by
J.D. Power* for the third consecutive year. We see this recognition as
an affirmation of the importance of building trust and loyalty with our
clients. We know when we do right by them they will reward us by
bringing their assets to Schwab, fueling our growth well into the
future.”

CFO Peter Crawford commented, “Schwab’s 2018 record financial
performance once again demonstrates the effectiveness of the company’s
financial formula. By focusing on our clients’ needs, we attract assets,
and then we translate that business growth into solid revenue growth
while at the same time exercising expense discipline – all of which
leads to enhanced bottom-line performance. With an organic asset growth
rate of 7% and a supportive environment for much of the year, we crossed
the $10 billion revenue mark for the first time, producing 18% growth
over 2017. Net interest revenue set a record at $5.8 billion, up 36%
year-over-year, due to the Fed’s rate normalization and higher
interest-earning assets, which reflect growth from both client cash
allocations and the transfer of sweep money market funds to bank and
broker-dealer sweep. As we progressed with these transfers, the
corresponding money fund revenue naturally declined, yet positive flows
in our advice solutions kept asset management and administration fees at
$3.2 billion, down just 5% from last year. Record trading activity from
our clients resulted in trading revenue reaching $763 million, up 17%
from 2017. Our 12% increase in expenses encompasses our expected
investments to support and fuel our business growth, including
additional client-facing employees and our 2018 priorities – Application
Modernization, Business Process Transformation, and Digital Accelerator.
Our spending also reflects our late-year decisions to increase marketing
and reward our employees, somewhat offset by the elimination of the FDIC
surcharge. Overall, we delivered a 550 basis point gap between revenue
and expense growth and produced a record 45.0% pre-tax profit margin, a
260 basis point expansion over last year.”

Mr. Crawford concluded, “Throughout 2018 we effectively managed our
balance sheet to drive a 19% return on equity – the company’s highest
annual level in ten years. We grew our consolidated balance sheet 22% to
end the year at $297 billion, reflecting client cash allocations through
the year – including a December surge in the midst of heightened market
volatility – and $72 billion of sweep transfers. We ended the year with
$30 billion remaining in sweep money market fund balances. Even with
these transfers, we continued to generate more than enough capital to
support our ongoing business growth and began accelerating returns to
our stockholders. During 2018, our Board of Directors raised the
quarterly cash dividend 63% and authorized a $1 billion Share Repurchase
Program in October, which we completed by year-end; our preliminary Tier
1 Leverage Ratio was 7.1% at December 31st, just above our
operating objective of 6.75%-7%. We will continue to utilize capital, as
necessary, to fund and support balance sheet growth. At the same time,
we are working with our Board to implement an approach for returning
excess capital to stockholders, as Schwab’s story evolves to include
both strong business growth and more meaningful capital returns.”

*Disclaimer: Charles Schwab received the highest numerical score in the
J.D. Power 2016-2018 Full Service Investor Satisfaction Study. 2018
study based on 4,419 total responses from 18 firms measuring opinions of
investors who used full service investment institutions, surveyed
November-December 2017. Your experiences may vary. Visit
jdpower.com/awards.

The company has scheduled a Business Update for institutional investors
on Tuesday, February 5, 2019. The Update is scheduled to run from
approximately 8:30 a.m. - 12:15 p.m. PT, 11:30 a.m. - 3:15 p.m. ET.
Participants will include members of the company’s executive management.
A simultaneous webcast of this Update will be accessible to the public
at http://schwabevents.com/corporation.

Forward-Looking Statements

This press release contains forward-looking statements relating to
growth in the client base, accounts and assets; growth in revenues,
earnings and profits; expenses; capital returns to stockholders; Tier 1
Leverage Ratio operating objective; and balance sheet growth.
Achievement of these expectations and objectives is subject to risks and
uncertainties that could cause actual results to differ materially from
the expressed expectations.

Important factors that may cause such differences include, but are not
limited to, the company’s ability to attract and retain clients and
registered investment advisors and grow those relationships and client
assets; general market conditions, including the level of interest
rates, equity valuations, and trading activity; competitive pressures on
pricing, including deposit rates; the company’s ability to develop and
launch new products, services, infrastructure and capabilities in a
timely and successful manner; client use of the company’s advisory
solutions and other products and services; level of client assets,
including cash balances; capital and liquidity needs and management;
client sensitivity to interest rates; the company’s ability to manage
expenses; the timing and amount of transfers to bank sweep; and other
factors set forth in the company’s most recent report on Form 10-K.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of
financial services, with more than 355 offices and 11.6 million active
brokerage accounts, 1.7 million corporate retirement plan participants,
1.3 million banking accounts, and $3.25 trillion in client assets as of
December 31, 2018. Through its operating subsidiaries, the company
provides a full range of wealth management, securities brokerage,
banking, asset management, custody, and financial advisory services to
individual investors and independent investment advisors. Its
broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; referrals to independent fee-based investment advisors;
and custodial, operational and trading support for independent,
fee-based investment advisors through Schwab Advisor Services. Its
banking subsidiary, Charles Schwab Bank (member FDIC and an Equal
Housing Lender), provides banking and lending services and products.
More information is available at www.schwab.com
and www.aboutschwab.com.

THE CHARLES SCHWAB CORPORATION

Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)

Three Months EndedDecember 31,

Twelve Months EndedDecember 31,

2018

2017

2018

2017

Net Revenues

Interest revenue

$

1,914

$

1,266

$

6,680

$

4,624

Interest expense

(288

)

(119

)

(857

)

(342

)

Net interest revenue

1,626

1,147

5,823

4,282

Asset management and administration fees

755

863

3,229

3,392

Trading revenue

206

154

763

654

Other

82

78

317

290

Total net revenues

2,669

2,242

10,132

8,618

Expenses Excluding Interest

Compensation and benefits

805

711

3,057

2,737

Professional services

178

151

654

580

Occupancy and equipment

128

113

496

436

Advertising and market development

93

63

313

268

Communications

63

60

242

231

Depreciation and amortization

80

69

306

269

Regulatory fees and assessments

31

46

189

179

Other

81

76

313

268

Total expenses excluding interest

1,459

1,289

5,570

4,968

Income before taxes on income

1,210

953

4,562

3,650

Taxes on income (1)

275

356

1,055

1,296

Net Income

935

597

3,507

2,354

Preferred stock dividends and other

50

47

178

174

Net Income Available to Common Stockholders

$

885

$

550

$

3,329

$

2,180

Weighted-Average Common Shares Outstanding:

Basic

1,343

1,343

1,348

1,339

Diluted

1,354

1,358

1,361

1,353

Earnings Per Common Shares Outstanding:

Basic

$

.66

$

.41

$

2.47

$

1.63

Diluted

$

.65

$

.41

$

2.45

$

1.61

(1)

Taxes on income were increased by approximately $46 million in
December 2017 due to the enactment of the Tax Cuts and Jobs Act.

Includes proprietary equity and bond funds and ETFs held on and off
the Schwab platform. As of December 31, 2018, off-platform equity
and bond funds and ETFs were $10.4 billion and $30.1 billion,
respectively.

(3)

Excludes all proprietary mutual funds and ETFs.

(4)

Second quarter of 2018 includes outflows of $9.5 billion from
certain mutual fund clearing services clients. First quarter of 2018
includes outflows of $84.4 billion from certain mutual fund clearing
services clients. Fourth quarter of 2017 includes an inflow of $16.2
billion from a mutual fund clearing services client.

(5)

In September 2018, the definition of active brokerage accounts was
standardized across all account types as accounts with activity
within the preceding 270 days. This change increased active accounts
by approximately 63,000.

N/M Not meaningful.

The Charles Schwab Corporation Monthly Activity Report For
December 2018

Net new assets before significant one-time inflows or outflows, such
as acquisitions/divestitures or extraordinary flows (generally
greater than $10 billion) relating to a specific client. These flows
may span multiple reporting periods.

(3)

Excludes Retirement Business Services.

(4)

In September 2018, the definition of active brokerage accounts was
standardized across all account types as accounts with activity
within the preceding 270 days. This change increased active accounts
by approximately 63,000.